UBS Warburg has been doing it for one year and BNP Paribas has just got started. These MTN houses are pushing out the boundaries of e-trading with their MTN sites, but online execution has yet to get off the ground. They are developing their sites mainly as a tool to speed up the exchange of detailed information. So how close are they to click-and-trade MTNs? BNP Paribas launched MTNMaster in October and it is the first system to tackle the thorny subject of structures. The site is divided into three sections. One section, called Project Monitor, gives libor levels on any structure. These libor levels are entered by BNP Paribas and show the structure and prices that investors want to buy. Issuers can browse this section to see what trades suit their needs. Daniel Cogoi, head of BNP Paribas' MTN desk, says: "Project Monitor shows the issuers all the live investor-driven enquiries for structured MTNs. We are not aware that there is any system that addresses this very important part of the market." But some dealers don't think that trading structures online is viable. Michael John Lytle, fixed income and debt capital markets e-commerce at Morgan Stanley Dean Witter (MSDW), says: "The structured process is very specialised and technology can't imitate what human beings do - there are too many variables." The section called Vanilla Indications gives live pricing for vanilla trades. Issuers enter their levels and only investors can browse the information. In the third section, Investor Opportunities, investors can see what amounts, maturities and prices issuers want. This will mainly focus on credit products and will be accompanied by advice from BNP Paribas on whether the trades are good value. Over 75 issuers have already requested passwords for the site, and BNP Paribas hopes to have 200 issuers subscribed to the site by the beginning of 2001. At the moment, issuers can enter their data directly onto MTNMaster, or they can send it as usual to the MTN desk, which will enter it for them. Even before the internet site, BNP Paribas had to enter the information into Excel or Access, but Cogoi plans to encourage issuers to enter their own data when the site is up and running. The system cuts out the first stage where investors call up BNP Paribas and ask what opportunities there are. It will also encourage reverse enquiry from investors. But it does not necessarily create transparency in the market because investors cannot see other investors' targets and issuers can't view the sections where other issuers display their levels. But Cogoi says: "We're not just displaying issuers' targets, we're processing information and therefore MTNMaster becomes an integral part of the daily process of matching issuers and investors." In light of this new competition, UBS Warburg is giving its own site a face-lift. The MTN platform, launched in October 1999, will be relaunched on November 30 with a redesigned front page giving market analysis and details of trades done that week. The breakdown of trades and market trends, along with the bank's own credit research and swaps levels will give investors useful market colour. Between 150 and 200 subscribed issuers and investors visit the site every month. Once UBS Warburg has entered the borrowers' funding targets, the system then automatically adds the basis swaps, interest rate swaps and credit-charging formulae to give live prices. All investors can see these live prices. But issuers have to e-mail or phone their levels to the dealer, who then enters the data onto the site. This is time-consuming for the dealer and Gavin Eddy, UBS Warburg's head of Euro-MTN trading, would like to see issuers take responsibility for entering their own levels. Shortly after launch, some issuers were asked to enter their data directly onto the site but they were reluctant to take on the extra chore in addition to the usual ways of posting levels. Eddy says: "We then developed technology to read borrowers e-mails, but it is a case of persuading them to put data in the format we require. There's a long way to go - the market certainly isn't ready for online trade execution for MTNs." Rabobank, one of UBS Warburg's clients, has used the system. An official at Rabobank's global liability management department says: "We don't use the full range of the website but it's very good for trading levels. It speeds up the process and has the most up to date prices." And some issuers are showing enthusiasm for online transparency. The US gic-backed issuers in particular are setting up their own systems. Jackson National Life has launched a site for dealers and investors, giving funding levels, issuance statistics, credit information for investors and financial statements. At the moment 25 dealers have access to the site, eight of which are named dealers on the MTN programme dealer panel. Another gic issuer, Pacific Life, also has its own MTN system. Other issuers meanwhile are reluctant to allow so much transparency into the market. UBS Warburg has about 400 issuers posting levels on its site, but several issuers were unwilling to openly display their levels. Eddy believes this is bad for the market. He says: "We've made the market more transparent and our business more efficient. It has to be that way to improve liquidity and increase volumes." But the debate continues as to whether the internet will be a successful trading medium. Both issuers and dealers are wary of letting computers replace relationships. Lytle, at MSDW, says: "A deal will often rest on half a basis point and with a machine there's no room for compromise." The human aspect of trading is important to issuers. The official at Rabobank says: "MTN issuance is very much a relationship thing - we have a good relationship with the UBS Warburg desk and that can't really be replaced, but the website adds to it." Rabobank said it would also use BNP Paribas' site when it is up and running. Tiina Lee, head of MTNs at Deutsche Bank, says: "An online trading system can only work in conjunction with a trading desk. The whole reason why investors come to the EMTN market is that they want a tailor-made product. It's unusual for investors to agree terms straight away - there's always some negotiation." Online execution of trades is the next goal. UBS Warburg is developing this capability on its MTN site. At the moment online execution is only possible through UBS Warburg's Ibol (investment banking online) system. So far this year six of its 312 non-syndicated, non self-led, MTN trades have been completed through the Ibol site. But investors aren't ready to let go of the dealers' apron strings and trade online. Another problem is that if each bank develops its own MTN site, issuers could be put off by the need to input their targets into dozens of dealer systems. This is a problem the market will have to address. One solution is for all banks to get together in a joint venture. But for now the banks are gearing up and getting themselves ready to compete in the online market. Even if they can't execute online now, their investment in technology and getting investors used to consulting online systems will put them in a strong position if online trading should come about in future. Cogoi admits that this is also important and he hopes that MTNMaster will assure BNP Paribas a seat around the table if there is any discussion about a joint MTN platform. Lytle, at MSDW, says: "Lots of useful information can be shared in an online system, but there is more to execution. A multi-dealer execution system is certainly a possibility." Lee, at Deutsche Bank, says: "In most other businesses people are hedging their bets and single-dealer trading sites are being set up as well as multi-dealer platforms. At the moment no one knows what will work best for MTNs. The only reality is that to do nothing is not an option."
December 15, 2000
